In the world of commercial lending, there are several options for obtaining financing for your business. Among them are asset based lending, invoice financing, contract financing and more, based on your company’s assets and pending orders. But what about financing that isn’t based on collateral? When your company needs an infusion of cash to finance a new product line or expansion into a new market, consider mezzanine financing.

This type of financing is ideal in situations where the business owner needs cash quickly and doesn’t have anything to put up as collateral. Lenders are usually investors who do less due diligence before making the loan. However, they will want to see a proven track record, a viable product and a plan for expansion before lending the cash.

Mezzanine loans can be a life-saver for a company, but, as with all good things, there can be a downside. If the business owner is unable to fully repay the loan by the due date, the lender has the right to take equity in the company in lieu of cash repayment. However, it is rare indeed that the company owner loses control of his business to the lender. In fact, having the lender’s business acumen can be a good thing, and oftentimes companies are able to grow under his or her tutelage. It is often possible to buy the lender or investor out at some point in the future as well, which can be the ultimate win-win scenario.

The relative ease of obtaining mezzanine financing may be outweighed by the high cost of this type of business loan. Lenders or investors generally charge extremely high interest rates, and may have strict repayment plans. On the other hand, some lenders may […]